The MSCI Emerging Markets Index surged in August, up about 3.3%, marking its strongest monthly gain since 2004 as investors rotated away from a narrow tech concentration toward AI-related small- and mid-cap plays, Chinese biotech, and commodities amid a softer dollar.

In a supportive move, South Korea’s National Pension Service stepped in to buy tech shares, lifting heavyweights like SK Hynix and Samsung Electronics, while Brazil faced shifting dynamics in Lula da Silva and Bolsonaro’s campaigns that stirred real and local equity markets.

Looking ahead, key events loom: U.S. nonfarm payrolls on early September, inflation data mid-September, and the Fed decision near mid-September, with a potential rate hike posing risk to the dollar-driven rally.

Investors rotated into emerging market equities, local-currency assets, and gold amid concerns about U.S. fiscal health, reinforcing expectations that the dollar will lose purchasing power and supporting EM assets.

EM currencies strengthened for a second straight month, with the won and the rand among the leaders, contributing to a favorable currency backdrop for EM assets.

Risk-off tone persisted toward month-end as renewed Middle East tensions and a higher probability of a September Fed hike—above 60%—weighed on risk assets.

The rally showed breadth, with the top chip-heavy stocks (Taiwan Semiconductor, Samsung Electronics, SK Hynix) reducing their share of index gains from 82% to about 11.5%, as leadership shifted to AI-related names, Chinese biotech, and commodity-linked assets.